Napier Port Holdings Limited (NPH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Napier Port Holdings Limited Annual Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Kristen Lie, Chief Financial Officer. Please go ahead.

Thank you, and good morning, everybody. Welcome to the Napier Port Holdings 2021 Annual Results Call. My name is Kristen Lie, CFO at Napier Port, and I'm joined on the call this morning with Todd Dawson, Chief Executive; and Alasdair MacLeod, the Chairman of the Board of Directors. During this presentation, we will be referencing the investor presentation included within the suite of information released earlier today on the NZX reporting platform and also available in the Investors Center section of our website. This morning, we will go through our presentation on the highlights of our 2021 financial year, including some more detailed analysis of our financial results. And then at the end of our presentation, we'll be happy to respond to any questions you may have. And I hand over to Alasdair to get things underway.

Thanks, Kristen, and good morning, everyone. On Slide 4. We are proud to report today another successful year under challenging conditions. At the half year results presentation in May, we talked about robust demand for our regions, food and fiber exports and the ongoing effect of COVID-19 on global and regional supply chains. Clearly, the supply chain disruption environment has not abated. It is continuing to present significant challenges for our cargo customers getting their products to international markets in addition to a considerably higher shipping cost environment. On the positive side, the Board is pleased with progress on our strategic initiatives. These are focused on trade growth, operational resilience and supporting our region in the central and lower North Island's future growth requirements. As part of this, we have significantly progressed the 6 Wharf construction project during the year. We've also taken positive steps toward our -- with our sustainability program, having established a Board committee to focus on the sustainability governance and having launched our corporate sustainability strategy and action plan during the year. We also hope that our investors and stakeholders take value from our recently published climate change-related disclosure report available on our website. For the financial year, we are pleased to report another strong trading and financial results for Napier Port, not least due to the strong log export trade during the year. The diversity of trade at Napier Port is a key strength. And this year, log export growth has effectively offset and exceeded the financial impact of no cruise revenue in this financial year. The Board has considered it important that we take a leadership position on learning to live with COVID in our communities. We support the outcome rates in conjunction with our people, to implement a mandatory vaccination policy amongst our own workforce in addition to working towards a similar position for all port users in the near future. In addition, the people of Napier port have been tenacious and pursuing stronger border protocols, vaccination requirements and testing in the New Zealand ports and maritime sector. So as a conclusion to my introductory remarks, over the last year, Napier Fort has again demonstrated its resilience and delivered on its commitments to its customers, its shareholders and its region. Todd will now take us through the highlights of the year's results. Todd?

Thank you, Alasdair, and good morning, everybody. I'm just going to cover off Slide 6. So good morning, everyone, and thank you for taking the time to hear our end of year results today. It's great to be able to report to you a strong set of results to present our annual report for the 2021 financial year. The Napier Port team and business have performed incredibly well under very challenging circumstances. And while COVID-19 is no longer a new event, it remains an ongoing challenge and source of uncertainty for our business, our customers and communities. Many of our primary fixed customers across the region have continued to experience buoyant international markets, resulting sustained and, in some cases, record volumes through our port. This is despite labor shortages, shipping challenges, ongoing disruption and operating constraints caused by COVID-19. At Napier Port, we responded operationally to the challenges of disrupted container shipping including changes to the slower ships and containers by working closely with our customers and addressing the practical implications of shortages and container equipment, unpredictable vessel schedules, land site storage capacity constraints and difficulties in securing space on international container vessels. We've done all of this while keeping each other in our community space from pandemic and while operating with a reduced footprint due to the construction of 6 Wharf carrying on right throughout. This has required additional areas of construction equipment and site access. Our construction program has continued with all the piling completed, bridging significantly advanced in thousands of tonnes of concrete having been laid. We've made significant progress on our strategic development programs, including 6 Wharf and our other key projects across our business. We've expanded our presence and capability to attract more cargo from across the North Island and to support our strategy of creating greater operational resilience, we have continued to invest in our people, and we look forward to the delivery of several new projects that will further support our growth and returns during FY '22 and into the future. This year, we paused briefly to review our business strategy to ensure it was still current with today's changing environment. We remain focused on our core purpose of working together with our customers and partners to build a thriving region. Our strategy has stood up to the test of major business disruption alongside continued growth, and it has been strengthened with the addition of an enhanced focus on sustainability, which builds upon our culture of care at coast of Napier Port. In addition to the sustainability strategy and action plan and our first TCFD report that Alasdair mentioned, our sustainability initiatives this year have included the launch of a comprehensive and world-leading Marine Cultural Health Programme. Overall, we are happy with our progress. And while recognizing some of the headwinds that COVID-19 has brought, we are progressing in line with our business plan, focused on growing our business sustainably. Slide 7. Despite a brief stricken lockdown during August that stop construction, we continue to make excellent progress with building 6 Wharf, and we are now focused on completion and operational integration and readiness for a go live in less than 10 months or so from now. Our focus on implementing our health and safety road map has now reached a stage where much of our planned foundational elements of the program are completed. We're now moving to the embed critical risk control management and additional assurance activities across the port. In the coming year, we will be validating this work and implementing any required changes. During the year, we established our Napier Port logistics service with our own team starting work and commencing road and rail services from the Hawke's Bay. We've had initial positive uptake from existing and new customers coming on board, and this is integrated well with our jointly owned Manawatu Inland Port operation at Longburn, which is just south of Palmerston North. With a commensurate step-up of activity being seen at the site now. Supporting this has been a number of international shipping lines now using Manawatu Inland port as their inland point of acceptance, allowing the on-hire and de-hire containers for shipping and direct services being accessed through the Napier. This year, we embarked on a range of other investments also to enhance our service propositions with our customers. We've worked with our customers to secure contracts for Napier Port services and will deploy an on-port mobile log debarker. This replaces exporters use of missile bromide from the first of January 2022. We are also preparing for the introduction of our mobile harbor cranes to be used for log loading onto vessels. This will commence in the new year and is anticipated to provide significant productivity benefits for customers as well as new revenue to support and significant improvements in health and safety outcomes. With the launch of our sustainability strategy and action plan, we've identified over 100 work streams to progress with 18 of these prioritized in the short term. We've been reporting our carbon emissions for many years. And during this last year, we have completed additional work on understanding our emissions profile and have identified some adjustments to our scope, definitions to incorporate these from next year's reporting. We're also establishing better capture and reporting systems, so we look forward to further integration of emissions reporting into our decision-making processes in the future. Our work to develop our data and technology platforms to create further value for our customers and operations has also progressed this year. With the launch of our in-house vehicle booking system, Propel delivering efficiencies and improve services to our customers and helping us to plan our operational resources. Customer feedback on Propel has been exceptional due to simplicity, value and efficiency at springing to their business. This year, we also launched our Harbour Management System, Sharewater, used to plan the flow of vessels and cargo. Sharewater builds upon a proprietary system and has the potential for commercialization throughout New Zealand and international ports that require similar capabilities with 1 New Zealand port already signed up for implementation services from Napier Port. Our planned development for the Whakatu inland port has now been moved through our original time frame of 5 to 10 years away and depending on volume growth in our future capacity requirements. Whakatu continues to provide a fantastic future opportunity to support our growth and will create a stronger and more resilient network of infrastructure for New Zealand supply chain. Moving to Slide 8. 6 Wharf construction continues to move at pace. You can see from the construction steps that we are substantially our way through our major works. This has translated into reducing the remaining risks on the project. We've now announced today a reduction in the forecast total cost for the project. We now expect the total cost of the project, excluding capitalized overheads and finance costs to be between $173 million and $179 million. This has been reduced from the original cost estimate of between $173 million and $190 million. We've also announced today a favorable adjustments to the expected timing for core construction completion. Whilst contractually, there has been no material change to the time period, we are confident we will be able to place 6 Wharf into operation during the second half of the next financial year ending September '22. This is earlier than our previous stated timing of around the end of the calendar year '22. The exact timing of course, depends on progress of the remaining project work streams, including installation and testing of a new electrically powered mooring systems, and container exchange operational trials being completed successfully with light vessels. We're eagerly anticipating safe completion of this project and unlocking the capability that strategic asset provides. Slide 9. For our trade results, in 2021, our total cargo volumes were just shy of 6 million tonnes at 5.9 million, which is a 16.3% increase from 2020. The empty container supply and significantly disrupted shipping schedules across New Zealand and globally has impacted the operations of almost all of our exporters and importers. Despite the challenges to customers in the container shipping industry, our container services business grew by 2.9% or 8,000 TEU. The majority of the additional TEU through the port this year were DLRs and tranships directly related to shipping schedule disruptions. However, we again had strong rate of volumes reflecting a strong meat sector. Apple volumes reduced 1.5% to 25,000 TEU compared to the prior year as some of the fruit was unable to be harvested and processed due to the well-documented labor shortages. Given the operating conditions we exporters, this was still a solid result for the apple industry. A 26.6% increase in bulk cargo volumes was driven by stable and positive export market conditions for New Zealand logs throughout the 2021 year, enabling a record 3 million tonnes of log exports from Napier Port for the first time. Overall, we see the trade result as a good one given the circumstances and reflective of the resilience in the local primary sector economy and demand for our region's products. Slide 10. Our record trade result has flowed through to record revenue, rising 9% to $109.5 million, and this is despite the lack of any cruise revenue, which we earned $4.3 million in the prior financial year. Following the strong trade and revenue results, our results from operating activities increased also 6.4% to $43.8 million. With the unwinding of some of the protective cost-saving measures introduced at the start of the pandemic in 2020, the ongoing investment in our capability to drive growth and resilience and the additional cost of hand and condition have partially offset -- they've all partially offset the impact of the revenue growth. Our underlying net profit still rose 7% to $22 million due to the higher operating results. Whilst we had another relatively short Level 4 lockdown period in August holding some cargo overall, this represents a very good second half of the financial year and a good platform for us to build upon. I'll now hand back over to Kristen, who's going to talk through the details of financial and operating results.

Thank you, Todd. Adding to what Todd said during 2021, revenue grew by 9% to $109.5 million. Within total revenue, bulk cargo revenue increased $10.2 million to $41.5 million. Container Services revenue increased $3 million to $65.3 million. And together, they more than offset the year-on-year loss of $4.3 million generated by cruise last year. Until the pandemic, cruise had been a growing business area for Napier Port and we look forward to returning sometime soon. When you may ask, well, that's, of course, outside of our control, but at this stage, we hope for at least a partial return commencing around this time next year, which would fall into our 2023 financial year. Moving on to Slide 13. The bulk cargo revenue increase of $10.2 million year-on-year was driven by this 26.6% increase in bulk trade volume to 3.95 million tonnes in 2021. Logs being the primary driver but supported by most of our bulk trades, including a 19.6% increase in bulk imports, led by oil products and fertilizer. Average revenue per tonne increased $0.48 or 4.8% to $10.50 per tonne in the year. Others increased $0.21 related to a one-off cost recovery revenue and the remainder to tariff increases and changes in the mix of bulk cargo and export customers. Increased bulk charter vessel calls also contributed to the increase. As a result of the volume increase and the lack of cruise revenue, bulk revenue was 37.9% of total group revenue in '21, up from 31.1% in the prior year. Slide 14. As mentioned earlier by Todd, log volume surpassed 3 million tonnes for the first time in the year as the wall of wood continues upon us. As shown on the chart on the left, the year-on-year increase of 27.6% as partly accentuated by the debt in 2020 being the impact of Chinese market disruptions leading up to New Zealand's first COVID-19 Level 4 lockdown. The shorter duration lockdown in the lower North Island in August this year, had a much smaller impact on log volumes than in 2020. Log volumes have generally been much more stable throughout the year due to sustained strength in export market conditions during 2021. Export market unit prices have generally been high with strong underlying demand, offset by and increasingly so by the cost of shipping charter and demurrage costs and landing the product with export -- with the export customer. Also note here that we've been liaising work and have now notified log exports from that report that we will cease to allow the on-port outdoor fumigation of logs with Methyl bromide from first of January 2022. This is for health and safety and environmental reasons and by virtue of the fact that exporters will have alternative options for meeting the phytosanitary requirements of export markets. These options include fumigation in the holds of vessels and also the addition of 2 local debarking units for exporters to use. One of these units is our own located on-site at Napier Port, which is currently being assembled prior to planned operation during the first half of our '22 financial year. Slide 15. The container services revenue growth of $3 million or 4.8% year-on-year, resulted from TEU volume increasing by 2.9% and average revenue per TEU increasing by 1.8%. Tranships and DLRs were up 6,000 TEU as a result of container shipping schedule disruptions. Due to the disruptions, shipping lines have been regularly emitting in ports often without much notice. This has meant that the shipping lines have increasingly requested the restoring of containers onboard vessels or the swapping of cargo from one vessel to another to assist that cargo to reach intended destinations. Our lower and central North Island supply chain initiatives have contributed with general cargo imports and meat export volumes, in particular, the green shoots for our supply chain business. In total, refrigerated or reefer volume was up 3,000 TEU or 4.7% and meat TEUs up 13.5% year-on-year. Average revenue per TEU increased 1.8% to $237 per TEU, primarily due to shipping schedule disruptions. Vessel emissions and shipping line, scheduled unreliability resulted in the following revenue impacts. Longer container dwell times was translated to higher average storage revenue for both dry and reefer containers and additional container terminal handling. In the other side of the ledger, fewer container vessel calls with 51 fewer calls year-on-year and lower volumes of pulp and timber containers packed through port pack. This last point resulted from pulp and timber often being deprioritized by shipping lines in favor of other cargo due to shipping capacity constraints. Aside from shipping schedule disruptions , the continued higher volumes of reefer containers increased average revenue per TEU because of additional income from related services such as powering and monitoring of these containers. Slide 16. Container shipping schedule disruptions also impacted operations and costs as well as revenue. Operationally, the disruptions resulted in all of container vessels and cargo competing for onboard slots like pulp and timber, mentioned just before, more rehandling and restacking of containers and the container terminal to manage disruptive schedules, and empty containers arriving just in time, creating pressure to move the containers off port and be serviced in a timely manner for exporters to use. Average container discharges increased nearly 25% to over 1,100 TEU per vessel in a year. These disruptions impacted costs directly in the form of higher mobile plant intensity, additional power generator equipment, more fuel and power and extra trucking and labor to move containers off port. Slide 17. Operating expenses increased 10.8% year-on-year and consistently across all main expense categories. Employee benefit expenses are up 10.8% due to the strategic investments in people and capability and the unwinding of COVID-19 response measures in 2020. These measures included the cancellation of staff and executive incentives, deferral of wage and salary increases and deferral of recruitment promotions. Property and plant expenses were up 10.7%, primarily due to the shipping disruptions mentioned, but in particular, generator costs, fuel and power due to a longer dwell time of reefers, and additional trucking costs. We did not yet see a significant impact from rising fuel and electricity market unit prices due to either fixed rates or hedging. However, we expect repricing of energy costs as our contracts roll over early in the new financial year. Other operating expenses are up 10.8% due to increasing insurance and technology costs. Slide 18. The results from operating activities of $43.8 million has increased $2.6 million or 6.4% compared to the prior year. The full year operating result represents a margin of 40% of revenue, which illustrates the benefits of the diversity of our cargo base. Going into the year, knowing there would be no cruise revenue, we expected our operating margin to be under pressure. Of course, the positive trade result principally in log exports has offset this temporary loss of cruise revenue. Net profit on a comparable underlying basis, 2021 net profit after tax of $22 million was $1.5 million or 7% higher than 2020. This principally follows the higher operating result after tax. The reported statutory net profit after tax of $23.2 million was $1.2 million or 5.2% higher than 2020. The difference between reported and underlying net profit for '21 was a $1.2 million investment property revaluation. Capital expenditure on Slide 20. Capital expenditure during the year was $110.4 million or $103.7 million in cash flow spend terms, the majority of which went towards 6 Wharf construction. Other investments included increasing our capacity to store refrigerated containers, payments on new plants for the log debarker and mobile harbor crane log loading trial and maintenance and replacement spend on Te Matau dry docking, walls, paving and buildings and replacement bulk cargo hoppers, amongst others. It's worth noting in the current global inflationary environment, like other costs, costs for capital equipment and works are increasing. Whilst the majority of 6 Wharf costs are already priced, this trend will affect our capital investment and capital asset replacement program costs going forward. Cash flow from operating activities increased to $34.8 million from $29.3 million year-on-year with improved underlying earnings and working capital in the current year, offsetting higher tax payments. Dividend payments during the financial year of $15.6 million, including the final 2020 dividend paid in December 2020 and the interim '21 dividend paid in June 2021 were together $10.6 million higher than the year before. After the net cash flow spend on investing activities of $103.6 million, cash balances decreased by $6.5 million during the year. The balance of spend was funded from drawings on our bank lending facilities. Drawn bank debt increased from nill to $78 million during the year. In addition to the drawn bank lending at the balance state, Napier Port had $102 million in undrawn credit facilities to continue with our future capital investment program, and in particular, the completion of 6 Wharf. Capital management on Slide 22. Finally, an update on our capital management targets. Last year, we flagged the likelihood of net debt-to-EBITDA rising above our peak target of 3.5x through the 6 Wharf construction period due to COVID impacts, including an expected loss of cruise revenues. Our underlying earnings and cash flows have exceeded our original market guidance for the year and the 6 Wharf progress has been very good. And consequently, our expected cost range has been reduced. This debt-to-EBITDA measure has been a point of focus and all things being equal, at this point in time, we are now comfortable with reversing back to our original target ratio guidance as shown on the slide. I'll now hand back over to Todd and Alasdair for our concluding remarks.

Thank you, Alasdair and Kristen. Just on the conclusion, Slide 24. My concluding remarks on our '21 financial year are that our business, our people and our region have weathered the challenges of the last year very well. We've moved record volumes at cargo despite massive supply chain disruptions, working with our customers to deliver solutions tailored to their needs while operating on a reduced footprint due to the construction of 6 Wharf. Our team has done all this while keeping each other in our community space from the pandemic and generated a strong financial result for shareholders. I'm delighted with the progress we've made on 6 Wharf, including reducing our overall cost range by over $10 million, but we still recognize that material risk in the project remains. Once we go live on 6 Wharf, cargo owners, our regional economy and shipping lines will benefit from 6 Wharf by providing increased shipping capacity across our whole port with the ability to handle more and larger vessels. This asset will allow Napier Port to support the demands of our region today as well as the growth we see coming into the future. We've also made great progress with the adoption of further sustainability initiatives and our other strategic initiatives this year. These will enable new revenue streams and growth opportunities for us as we activate these during the financial year '22, including our log debarker mobile harbor crane log loading. So in the face of global pandemics, lockdowns, global shipping condition, disrupted shipping schedules and supply chains. We have, over the last year, again, demonstrated our resilience and our focus on delivering our commitment to our customers, shareholders, community and our people. Slide 25 on outlook. Looking forward to the 2022 financial year, we see the continuation of container-based supply chain and shipping disruptions. Our cargo customers are concerned by ongoing constrained equipment and space availability, increasing shipping costs, labor shortages and an increasingly inflationary environment. This course on COVID has evolved since last year. We're now preparing to live and operate with COVID in our community. We have taken a leading position amongst New Zealand ports and implemented a mandatory vaccination policy for all our people and are moving towards mandatory vaccination for port access by the end of the calendar year as vaccine passports in our community or port business become able to support these measures. We look forward to successfully delivering a number of our strategic capital investments during 2022, including 6 Wharf, which we expect to be operational in the second half of the '22 financial year. The completion of 6 Wharf will see a change in our enterprise risk profile and the initiation of finance costs and depreciation in our income statement. We will continue to build on our capability and invest in our people to enable our ongoing growth and resilience. As we've highlighted previously, we are seeing inflationary cost pressure. This is now broad across many cost categories, energy, labor, equipment, technology and insurance. Of course, underlying base interest rates are increasing from unprecedentedly low levels as well. Looking out further, we expect to see international borders reopening and a return of cruise ships. Have no cruise ships are expected to make Napier Port during the current 2022 season. We are hopeful the cruise industry will already start and rebuild during the 2023 financial year. In terms of trade and results expectations for 2022, as we have seen in 2021, log export volumes can have a material effect on our financial results. We reiterate our commentary from August in our 9-month results that we are seeing some market signals suggesting moderating prices and higher shipping costs negatively affecting the trade economics. The Chinese construction industry and ever growing credit situation is affecting exporters confidence in the short term. Our base case volume forecast for log export volumes in 2022 is in line with our 2021 results of 3 million tonnes against an increasing profile of maturing trees ready for harvest across the Hawke's bay and [indiscernible] . In respect of earnings, we are committed to improving yields and growing revenue to generate returns on investments in our strategic assets, recognizing the significantly increased level of capital investment on our balance sheet, we note that our most recent update to our published public tariffs included an increased container trade infrastructure levy to all our container trade shipping lines and the inclusion of a general bulk cargo infrastructure levy. Both became effective from the first of October 2021. Taking into account the expected contributions from completing strategic projects, our best case forecast for log volumes and assuming a continuation of the current market conditions, we expect our underlying result from operating activities to increase by approximately 10% for the new financial year. We look forward to providing a further update to shareholders at our Annual Shareholders Meeting in December. I'll now hand over to Alasdair.

Thanks, Todd. Slide 26. Finally, we have announced today a final 2021 dividend of $9.4 million or $4.07 per share. This dividend will be fully imputed and paid on 16th December. This brings the total dividend for the 2021 year to $15 million or $7.05 per share compared to last year's COVID-impacted dividend of $10 million. I'll now hand back over to Kristen, who will conclude the presentation.

Thank you. That concludes our prepared presentation. We would like to provide the opportunity for those on the call to ask questions related to our presentation. And therefore, I'll hand back over to the moderator to do so.

[Operator Instructions] Your first question comes from Andy Bowley from Forsyth Barr.

Got a few questions here. The first of which is just around your EBITDA growth guidance. Todd being 10% for the year ahead. I'm conscious that you made some comments around logs being flat and some of the qualitative comments around that suggested the risk of that could be on the downside. We've not got cruise. Where is the growth coming from? Is it purely pricing? What are your expectations around containers in terms of implied in that guidance? And what is the impact of some of the other projects coming through like the debarker and the use of the mobile harbor crane for logs?

Yes. Okay. Thanks, Andy, for the question. Yes. So we -- as we talked about, we are factoring in a continuation of the current market conditions and being prudent in our approach to the log market, given what we're seeing in terms of potential risks particularly up in China at the moment. And we're also working hard on improving the yield or mix of cargo coming through the port, those strategies around growing our container trade volumes through the field and then expecting to see some of the new revenue streams come online with the log debarker and mobile harbor cranes. But all those factors combined lead us to that conclusion of being able to see 10% growth opportunity in the new year. So hopefully that answers you question.

Where is the majority of the growth coming from?

It's a combined -- combination factors, Andy. So it's both the volumes we see coming from, new growth coming through, focus on our strategy, focus on those new revenue streams. And it is against a backdrop of continuing market conditions as we've seen. Obviously, we're obviously seeing there is still some risk around COVID, around China And that's where we've land.

What's -- just as a reminder, I recognize that your pricing schedule has quite a number of different components. What's the kind of the weighted average increase in terms of the levers being imposed on the container side of things?

We're not going into that level of detail today, Andy, but you can look at our public tariffs that have been published around the impact of some of the changes there. Obviously, we're reviewing pricing with shipping lines as their contracts and thing has come up as well. But we're also working hard around making sure that our pricing and our cost measures reflect the desire to get a decent return on invested capital and on the capital invested and some of these strategic investments such as 6 Wharf and others.

Do you expect -- in terms of the pricing this year and recognize that the tariffs are just kind of the rack rate and underlying pricing with shipping lines differs to a certain extent? What kind of pricing are you anticipating across the board? Are you going to see pricing in excess of CPI this year?

Look, each one is different on applying merits depending on the arrangements we've got with various different shipping lines. But our focus is across the whole trade base when it comes to pricing. But I think as we've talked about before, our strategy is a 3-pronged one. We look at growing our revenue, making sure that our cost base is controlled and looking for operational efficiencies there. And lastly, we look at price as the options to also make adjustments. But inflationary pressure is certainly there, that's been recognized in some of our pricing moves as well. As well as that desire to make sure we deliver that return on invested capital outcome that we're all looking for.

Yes, sure. And then maybe lastly on pricing. Looking ahead to 6 Wharf commissioning, I assume that we haven't put any pricing through to reflect the investment that's been put into 6 Wharf as yet?

Again, we look at the whole long-term plan, and we're looking at all the various different moving parts of our business and making sure that we are trying to generate a return that's commensurate with the -- what we've outlined for in the past. So we'll make adjustments as we need to on price. But again, our focus is on making sure that we look at volume and we look at product and cost optimization as well.

So is that a yes or no, Todd? Sorry to pressure you on. I'm just not sure.

That's good. As we've always talked about, Andy, it is definitely that 3-pronged that we take around looking at those returns profile. We're not going to say...

But you haven't provided any pricing moves as yet in relation to 6 Wharf?

6 Wharf is the...

The Ports of Auckland just announced their infrastructure levy from first of Jan and midyear next year in relation to all of their infrastructure of recent years. You haven't made a pricing move yet in relation to 6 Wharf?

Not specifically relating to 6 Wharf -- 6 Wharf is one of many other investments that we're making. Obviously, it's the most significant one at the moment. But we're not going to go into details around any particular pricing moves and that related to 6 Wharf in itself. We'll look at the whole business and look at what we need to generate from a return for all the investments that we make and the capital that we deploy across the whole port over time.

But at some stage, you will need to make a pricing move in relation to 6 Wharf, which I'd anticipate -- can really only be done once it's commissioned. Is that fair?

No, that's not necessarily the case, Andy. When we talk to our customers about pricing, we're talking about all the value that we're creating for them and the need to get a reasonable return on invested capital for the whole port, 6 Wharf is going to be an enabler for all the cargo trade going through it. It's going to be mainly used for container trade and crews. However, it's going to also unlock a lot of benefits for cargo customers across the whole port in particular the bulk end side. Discussions with bulk customers this year have been centered around them understanding the benefits that are lucky to come on stream for both 6 Wharf and other investments that we're making such debarkers and things like that. So it's really is a whole of port enabler, we've talked about many times in the report it unlocks the congestion issues that we've seen here and has been built on the growing trade profile that we can see coming not only from this -- within the region. But equally, you layer on top of that the strategy to grow and reach from outside of the region and that will more than comfortably bring us in line with the return on invested capital that we've always committed to 5 to 10 years post 6 Wharf construction.

Your next question comes from Wade Gardiner from Craig's Investment Partners.

I'll ask 2 questions from me. While we're on the guidance levels. Just interested in your best case for logs, what gives you the confidence that you can do 3 million tonnes given what's happened to pricing in recent months?

I think, Wade, the -- obviously, we've -- gives us confidence we've done it already in terms of being able to operationally handle it. But equally, it's against a backdrop of still that growing profile in the log volume plus some of the volume that we're seeing coming through from out of region as well through our efforts working with different exporters. But yes, so that's where we -- it's why we're confident. We obviously -- in close contact with a lot of our exporters, some of the bigger ones that tend to ride through these ups and downs, as we've seen over the last few years in discussions with you guys have probably seen 3 or 4 incidents of different market dynamics that, of course, short-term concern. So our view is that a like-for-like year under current market conditions is that would be a good outcome, but we are recognizing that there's still some volatility out here with China and other things as well.

How important is the woodlot market to that? Does that move around that much around price? Or are those guys pretty much locked in and they sort of become a bit of a price taker?

As you know, we have to be a bit of a focus over the last few years of trying to move more of our volume across to more what I would describe as the stack owners and focusing on cargo or cargo owners and the forestry sector that have good visibility through the forest that they either own or have different contracts around longer term to be able to have the privilege of wood pushing the volume through Napier Port. So to answer your question, still, there's still a reasonable amount of woodlot volume coming through in the port. But a lot of that is from within the region and has committed on price as well. So there is some risk to that. Those are the ones that are generally going to slow down -- take over the Christmas, New Year period. But large proportion of our volume is coming from a state forest and bigger companies these days. And they're generally under this sort of market as well. I'm very nervous about losing the labor supply. And therefore, they'll look to retain that and keep the volume flowing through, even though they sort of looks in the market. But I will say that they recognize that the price has been up around $180, come down to $150 , and then historically, on a sort of an average basis, that's still a reasonably good price for logs moving out in New Zealand.

Okay. Just in terms of what the comments you made on the bulk and container levies. And the fact that it takes time, you're dealing with different shipping lines, different contract links. Should we assume therefore -- well, the question, I guess, is how long will it take for these levies to actually flow through to those contracts? And should we assume that, therefore, it will also be a feature of FY '23?

Yes. So the recent changes in the levies was applied from the first of October. So we're are seeing that flow through in this financial year. Contractual changes for shipping lines actually there, they own commercial rates that they have with us they obviously mature at different stages for different lines. But yes, we would see and expect those changes in terms of the levies to be flowing through now, and it's the new financial year -- later into future years.

But do those -- just some of those contracts of sufficient length that you can't reprice this year and then therefore, it becomes an FY '23 or later issue?

Yes, yes, that's right. That would be fair. The levies are applied across the board. They're not related to individual contracts. But those levies apply to all parties and not contractually bound.

Okay. What was the other thing I was going to ask you -- was just in terms of the debarking, what's the sort of the net revenue, net cost of that. I mean you put debarking season, but I assume there's a bit of -- there's some OpEx associated with it. So relative to, say the old method of methyl bromide, should we expect a sort of a positive or negative contribution there?

They have positive contribution. At the moment, we don't charge for methyl bromide services. That's independent contractor that provides those services to the lobbying in export market. This will be a Napier Port for other service. So it will be all new revenue there'll be some additional operating costs associated with it, but it's all new revenue in Napier Port. The charge is not per tonne basis.

[Operator Instructions] Your next question comes from Jonathan Davis from ACC.

Congrats on a good result. I was wondering if you're able to provide a bit more detail on the current congestion report. So what's the average dwell time are the ships waiting offshore and containers on the yard? And is that improving or deteriorating in the lead up to Christmas?

Right here and now, we don't have any congestion issues at Napier Port. There's no big hauls waiting at -- an anchoring to come through. This is our -- typically our lowest period or lowest season in terms of volume through the port, which is in contrast to some of the other ports that, like Auckland and Tauranga are going into their peak season with the imports starting to ramp up in the dairy profile ramping up at this time of year. So we're quite lucky at this time of the year to be congestion -- relatively congestion-free. So -- but what we are expecting to see is that those upper North Island ports will become congested again. And indeed, they probably already are starting to feel the fix of it now, and we'll be looking to support them as it lead into Christmas and the new year. And in our peak season, we'll start typically around about February and flows through to around about August as the water culture and sector starts to export those products. So yes. So we are expecting supply chain disruption in general, the whole shipping industry, schedule reliability is completely out of whack at the moment. So we're looking to see -- or we'll be expecting to see again, vessels arriving very, very full, departing, very, very full, empty containers arriving on a just-in-time basis rather than prepositioning in the heat of the season. Container supply shortages and things like that, looking to be continuing on for some time now.

So you've been catering to sort of Auckland bound or Tauranga bound ships during FY '22 that might go back once the condition eases globally?

We're seeing a small amount of volume flowing through Napier Port as a result of some of those [indiscernible]. But as Kristen was talking about in the presentation. We've seen a lot more of the shipping lines looking to utilize Napier Port for, I guess, rehandling of cargo, restoring of cargo vessels, sorting out vessels before they go to the next port as well. So that's where we've been playing quite a strong role and support a bridge the supply chain in New Zealand.

Sure. Just on the inland port, is there any update on moving Longburn to [indiscernible]? And how many containers was handled at Longburns this year?

No detailed update on that. Obviously, [indiscernible] has been in discussion with [indiscernible] For little while and the time frames that aren't that certain as to when that development would go ahead. But what we're focusing on at the moment, remember in the imports is just making sure that, that operation is working really well, and it's growing, and we're seeing some of the shipping lines starting to use it more and more and exporters in that region, use it more and more, which is really pleasing to see. I don't have a number of the top of my head on how many containers have moved through that site over the last year, but we are seeing it significantly grow.

And if it -- what sort of CapEx do you think you might have to spend [indiscernible]?

Jon, they probably just depending on the model that we agree. So it's clear that KiwiRail looking to control the sites. So we just need to work through with them in terms of what that might look like in terms of what we think we need for operation or in the model, I guess, that goes with it. So I guess it could be different options.

And on the bulk side, the one-off cost recovery of $0.21 a tonne. What was that? And I assume we adjust that in FY '22?

Yes. So we've reported it in our half year and a 9-month results that just because it happens right back so [indiscernible] and the annual shareholder meeting, we've got a notice about a ship fire. So unfortunately, the vessel was in some distress. And essentially, it was required an intensive amount of support for quite some time afterwards, which we were able to recover our costs. So it's definitely nonrecurring. We certainly hope so. Yes, but that was a one-off event.

Okay. And on the COVID vaccination front, how long has it been since the workforce has received their second shot? And did you lose any staff going down to sort of vaccine mandate rates?

Yes. So we've obviously been subject to the government mandate for what they call Tier 1 frontline workers for some time. And we've had 100% compliance on that. But we've implemented a port wide or a Napier Port employee policy to have 100% vaccination status. So that came into effect about 3, 4 weeks ago. And we're now at a stage where out of about 330-odd people, we anticipate potentially only losing one person. So it's a great result in terms of uptake on the vaccine across our workforce, obviously, we have to work with them all quite closely to get to that stage. But we're pleased to be back -- we'll be pleased to be through that process now and also the news on the boost of vaccine coming in at the end of the month as well has been well received, and we'll be on -- we're making sure that everyone stays up to date with vaccinations going forward. Then obviously, we're also working with the local community about a vaccine mandate for port wide access. So it's all the other users that come on and off the port towards the end of the year once vaccine passport capability comes into fruition. We're also implementing rapid saliva testing, but as opposed to what you might be hearing in the media, ours is actually using PCR technology. So we believe it will be the first non-health organization in the country to actually implement rapid PCR saliva testing on port for screening of all our employees.

Your next question comes from Michael Murray from Australian Ethical.

Just wondering where would you expect capital expenditure to sort of settle post the completion of Wharf 6?

Well, generally, we expect it to normalize back to sort of replacement capital sort of trend. I mean, there will always be a consideration of sort of further development type projects. But by and large, it should just revert back to sort of where we're pre- 6 Wharf really.

But what's that kind of number, that replacement number?

Well, it bounces around, to be frank...

That's why I was asking.

Yes. So this year, it was roughly $5 million, historically, I guess in my mind, I would have said something around depreciation would be sort of on average that depreciation has probably gone up for the last several years. So some sort of in that sort of range, I suppose, it's probably the best indication, but it will bounce from low to high, depending on the equipment and other things.

[Operator Instructions] Your next question comes from Shane Solly from Harbor Asset Management.

Well done on a really strong result. Just a question if I may ask about rates. In terms of shipping companies are obviously doing quite well at the moment. What do you think about -- what's that mean for rates cards going forward for various trades?

Shane. Yes, we are hearing that shipping rates are definitely hitting north into the pricing. When you look at some of the reports that are coming out of the shipping industry as well. There's a lot of hockey stick graphs there. The expectations from most of our major cargo owners locally is that they are expecting significant increases in their shipping rate cards. And indeed, some of them are actually having trouble in getting rates off the shipping lines. The opportunistic nature of the shipping industry, taking advantage of that. So it is a little bit worrying concerning as to what sort of increases they are expecting to see coming through this coming season. In saying that though, we're hearing anecdotally as well that globally shipping prices are starting to stabilize, reached their peak and in some degree coming off a little bit is what we're hearing.

Great. Just an associated question then in terms of visits, do you think the shipping companies are likely to continue to alter their -- what’s the best way of putting it? Port core, right? You talk about blanks, more blanks or less blanks?

I think what we're anticipating the debt disruptions continue on obviously, from a container trade perspective, we saw a number of vessel emissions in last year, and we expect to see that trend continuing. And what we're also seeing is the exchange size on the visits becoming larger. So there's less vessels coming through, but the exchange rate is much, much bigger. And we expect to see that compared trend continuing on for at least the next year, maybe even a little bit longer until new capacity comes on stream across the globe. And we know that both of the shipping lines are really looking at their schedules and routes around New Zealand as well.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Lie for closing remarks.

Thank you, everyone, for joining us today for the Napier Port Holdings 2021 financial year results call and for your questions. That ends our presentation. And as always, I wish you a good day, and talk to you again soon.

That does conclude our conference for today. Thank you for participating. You may now disconnect.